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VINAYSHIL GAUTAM
The next Budget Session of Parliament will be important because this time there will be more emphasis on strengthening the foundation of the Indian financial system.
These are the times which call for a mixture of the global with the contextual. It is not always innovation that calls the shots but also the rigour with which the routine is carried out. To that extent it is necessary to recognise that the so-called meltdown has really meant a bonanza for many executives and quite poignantly it highlights an aberration of the existing financial system.
Mercifully in India, we have avoided that claptrap and for that the uniqueness of the Indian economy deserves to be complimented. The emergence of the rural consumer and low-cost housing are merely two indicators of the uniqueness of the Indian economy, even though these have been proverbially ignored. There is an Urdu proverb which totals up to saying: “Even if the realisation comes in late but salutary, it’s worth it.”
But to get back to the state of the global economy and to alert the thinking on the financial architecture, a reference may be made to Crain’s New York Business. It indicates that as several Wallstreeters lost bonuses and thousands received and indeed continue to receive pink slips, top executives raked in millions of dollars. Peter Kraus got $ 52.538 million when he joined investment management firm Alliance Bernstein Holding in December 2008. Mario Gabelli made $ 46 million at Gamco Investors and Louis Camilleri made $ 43 million at Philip Morris. These were not the only phenomenon which are on record. Only that, we have not heard of them in India.
But then our understanding of economic system in a global dynamic mode leaves much to be desired. The list does not end there. Sports Illustrated have reported that Alex Rodriguez made $ 35 million and Derek Jeter earned $ 30 million last year. It is obvious: The financial meltdown caused gold dredging!
It is about time shareholders started scrutinising compensation packages and remuneration committees of the boards of corporate entities did some due diligence of what is going out, where and in which direction.
The Budget may not be the place where this can be set right but it can initiate the process of financial reform in a far more comprehensive manner, even what has been attempted in the last decade-and-a-half.
By the same token, in India, though on a comparatively diminutive scale, some of the micro-finance companies have been doing rather well. The sector which caters to the rural segment is likely to cash in on the boom and make good money. The determining characteristics of Indian economy, like anywhere else, are unique. Low-cost housing is one. Fancy houses draw attention; low-cost housing meets the routine needs. This will push the demand of cement and steel. The emphasis has to be on rural consumption and make it grow. That is where the money is and that is where the growth will take place. Providing a stimulus package is only trying to douse the fire with oil.
In our highly-regulated banking and financial services industry, expecting high domestic consumption is often based on assumption which is not sustainable. Similarly, boosting domestic savings seems to be handled more fancifully on the basis of assumed paradigm rather than on the basis of sustained and empirically verifiable conclusions. One has to get the people start spending in the sectors where it exists. Here is the large opportunity to get a fresh look at the reform programme.
The important thing is to recognise as to where investment has to be made. India needs to be made ready to receive money as one of the major centres of the global financial market. Obviously, capital will gravitate to the economy where the investors can get good return. India has to be positioned to offer that return and be ready for it.
The nation has to rise to the occasion and spell out its priority. The tendency to treat tax reforms like electoral reforms has to be resisted. The Budget Session should prove at least to be the thin edge of beginning to cause the opening. One hopes it will happen.
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